Testing the double dividend hypothesis under varying tax types, economic, and institutional capacity settings for developing countries

The article substantiates the necessity to introduce systematic and effective tax eco-reforms in the context of resource-oriented economic development by the European Union countries. The performance and effectiveness of the reforms are estimated in relation to the main four groups of environmental taxes: energy taxes, pollution taxes, resource taxes and transport taxes. The macroecological policy of the European Union countries is the object of the undertaken analysis. The article examines the impact of macroeconomic factors on environmental taxes across the EU, using a correlation analysis toolkit. Four groups of macroeconomic parameters were selected for analysis: internal macroeconomic factors (nominal GDP, real GDP, inflation, business cycle stage, budget deficit, energy consumption level); external macroeconomic factors (government debt, exports, foreign direct investments); institutional macroparameters (environmental culture, shadow economy, trust in government) and fiscal macroparameters (tax culture and fiscal freedom). The economic interpretation of the obtained correlates is given. Based on the correlation analysis, stimulators and de-stimulators of tax environmental reforms across the EU were identified. It is established that the factors that positively influence on the tax environmental reforms are the overwhelming majority of the analyzed factors. The formation of indicators of the effectiveness of tax environmental reforms is undertaken for six countries of the Community. In particular, the analysis covers three economic leaders (Germany, the United Kingdom and France) and three leading EU countries in the field of environmental tax collection (Latvia, Greece and Slovenia). The article presents approaches to improving the assessment of the effectiveness of tax environmental reforms based on the consideration of fiscal (budget-filling) and reproductive (multiplicative) functions of environmental taxes. In this regard, the environmental tax multiplier and accelerator, as well as the GDP elasticity coefficient for environmental taxes, were calculated for the analyzed group of countries. The criteria of economic efficiency of tax eco-reforms are proposed. Keywords: environmental taxes, macroeconomic effect, macro-environmental policy, multiplier, accelerator, elasticity

Climate changes are more and more evident and their effect is increasingly extensive, and in the current context the environmental taxes may become a key factor in ensuring the sustainable development for the entire society. This article presents a medium-term analysis of the main categories of environmental taxes, their evolution compared to the investments for air and climate protection, as a percentage of GDP, made in Romania. Four main categories of environmental taxes: energy taxes (including transport fuels); transport taxes (excluding transport fuels); pollution taxes and resource taxes are collected in Romania, yearly. The data used in this study provides from the National Institute of Statistics. During 2006-2020, in Romania the highest percentage is represented by energy taxes 88%, in second place are taxes for transports 10% and in the third and fourth places with insignificant percentages (about 1%) are the taxes for resources and for pollution. From the four categories of environmental taxes, it can be seen that resource taxes have a decreasing trend from 51.6 million euros in 2006 to 3.84 million euros in 2020, while energy taxes, transport taxes and pollution taxes have an increasing trend. Keywords: climate changes, environmental taxes, sustainable development, air and climate protection

This study investigates the dynamic relationship between environmental tax revenue and economic development in the European Union from 2013 to 2022. The findings reveal that these taxes significantly contribute to economic development in the long run, although short-run effects vary by tax type and country. The PMG model results indicate that energy tax revenues increase GDP per capita by 0.038, transport tax revenues by 0.041, and resource tax revenues by 0.018, all of which are statistically significant. Pollution tax revenues have an effect of 0.002 in the long run but are not statistically significant. In the short run, none of the tax variables show significant effects, although pollution tax revenues have a transitional impact of 0.196. The error correction term of −1.321 confirms a strong long-run adjustment, reinforcing the gradual economic benefits of environmental taxation. The results underscore the importance of resource and pollution taxes, which exhibit robust positive impacts, particularly in resource-rich and pollution-intensive economies. Energy and transport taxes also influence economic performance; however, their effectiveness depends on the structural and sectoral differences among countries. This study provides valuable insights for policymakers by highlighting the necessity of designing tailored environmental taxation policies that align with national conditions and long-term sustainability goals. Additionally, this study adopts a systems thinking perspective to capture the interconnectedness between environmental fiscal instruments and macroeconomic sustainability, offering a holistic interpretation of policy impacts.

Internationally a debate on the distributional impact of energy taxation has focused on the tax burden relative to income. The general conclusion is that taxes are regressive, but at a varying degree for different countries. This study examines the relationship between location, income, heating technology characteristics and the energy tax that households pay. The article aims at identifying general implications of energy taxes with respect to different impacts on population groups depending on location and income. Tax payments associated with energy use are considered relative to total disposable income of households grouped in income deciles and by other characteristics. The impact of environmental taxes depends on income levels in rural areas compared to income in urban areas. In Denmark, the income difference is found to be quite small, but energy consumption and, therefore, also the burden of energy taxation, is higher in rural areas. Furthermore, the low-income households in rural areas consume much more energy than low-income households in urban areas. Low-income households in rural areas are, therefore, a group that is specifically exposed to increased energy taxation. Households living in rural areas have the disadvantage of not having access to public heating grids and natural gas grids, which is adding to the risk of high welfare losses from higher taxes. Apart from higher energy costs, the rural households also pay considerably higher taxes on transport by private cars. This article documents that rural populations have higher energy bills also compared to income, but there is no income inequality between rural and urban areas in Denmark. In countries with higher inequality in income distribution and a higher proportion of low-income households in rural areas, the impact of energy and transport taxes might be more uneven. In such cases, the environmental tax structure should compensate the low-income rural households. For countries with a high proportion of low-income households living in urban areas and little income inequality, this issue might, as in the Danish case, not be a problem in the design of energy and environmental taxes.

Introduction Environmental policy is traditionally analysed assuming that pollution externalities are the only market failures. In recent years, however, policy makers have increasingly recognised the importance of interactions between environmental policy and other policies aimed at addressing non-environmental distortions. In particular, the revenues from pollution taxes can be used to cut other, distortionary taxes. In conducting such an environmental tax reform, governments may reap a ‘double dividend’ – not only a cleaner environment but also non-environmental benefits associated with lower distortionary taxes (see e.g., Pearce (1991), Pezzey (1992), and Repetto et al . (1992)). Governments in Europe are particularly concerned about the adverse impact of high levels of distortionary labour taxation on employment and labour supply. Some analysts claim that a shift from labour towards environmental taxation may help to boost employment by encouraging employers to substitute labour for polluting inputs (including energy). Moreover, lower levels of labour taxation might stimulate labour supply. The non-environmental dividend can be defined in various ways. This chapter focuses on the non-environmental dividend in terms of higher levels of employment. However, in addition to employment, other economic variables, such as transfers and profits, may directly impact overall welfare. Therefore, at several places, the chapter refers to changes in these non-environmental variables also as dividends. The rest of this chapter is organised as follows. Section 2 develops a simple general equilibrium model to explore the employment and welfare effects of an environmental tax reform, i.e., raising environmental taxes and using the revenues to cut labour taxes. Due to the presence of a distortionary labour tax, a decline in employment produces a first-order loss in welfare (section 3).

With the policy performance of the Nordic countries especially from the aspects of energy security, energy equity, and environmental sustainability, this study provides more in-depth on the performance of the countries’ disaggregated environmental taxes. To examine the greenhouse gas emission and energy intensity effects of energy tax, pollution tax, resource tax, and transport tax alongside controlling for the role of employment rate and gross domestic product over the period 1995–2020, empirical tools such as the method of moments quantile regression, short- and long-run cointegration, and Granger causality approaches were utilized. Importantly, there are series of interesting results from this investigation. Firstly, the result posits the feasibility of Green growth in the panel of Nordic countries while a significant and negative nexus between GDP and energy intensity was also established. Secondly, also from the panel result, we found that only energy tax significantly mitigates both emissions and energy intensity across the quantiles while pollution tax and resource tax exacerbate emissions and energy intensity. Thus, for the panel case, only energy tax could validate the double dividend hypothesis. Thirdly, the result revealed that double dividend hypothesis and by large extent co-benefit is achievable with pollution and resource tax policies in Finland but in the short-run. Similarly, pollution, resource, and transport tax policies in Sweden are all desirable for achieving both environmental and economic benefits in the short-run. However, there is no valid evidence to support the validity of double dividend hypothesis in Denmark and Norway. Lastly, we found a one-way Granger causality from GDP, energy tax, resource tax, and transport tax to greenhouse gas emission while a one-way Granger causality also exists from GDP, energy tax, and transport tax to energy intensity. Overall, compelling policy dimensions are inferred from the investigation.

The use of environmental taxes can encourage a shift toward eco-friendly choices. When used in conjunction with other policy tools available, environmental taxes can help bring about the adjustments needed in order to address our current environmental and climate challenges. Therefore the objective of this study was to examine the impact of environmental taxes on energy consumption and energy intensity using panel data covering the period 1995–2014 from 35 OECD countries. I employed environmental tax to total tax ratio, total energy consumption, and total energy intensity to estimate the relation between energy consumption and environmental taxes. Using the fully modified and dynamic OLS techniques and I showed that environmental taxes have a negative effect on energy consumption and energy intensity in the long run. Furthermore, using the Dumitrescu and Hurlin’s panel granger causality test I found a bi-directional long-run causality between environmental taxes and energy consumption and intensity. With regards to the disaggregated effect of environmental taxes, this study found that energy taxes (including CO2 taxes) have a larger effect on energy consumption and energy intensity than pollution and transport taxes. To test for the robustness and sensitivity of my model, I resorted to the total environmental tax to GDP ratio and employed both GMM and quantile regressions. Thus, I concluded that environmental taxes have a significant impact on energy consumption and energy intensity among OECD member countries.

The need for transportation is increasing with the effect of globalization in the developing economic system. The transportation sector, which is essential for economic development, may pose some threats to a sustainable environment. Although European countries have achieved various successes in reducing carbon emissions, they are struggling to reduce carbon dioxide (CO2) emissions from transportation. To overcome this difficulty, European countries are using various policy instruments such as environmental taxes. In this context, this study investigated the impact of disaggregated environmental taxes (pollution, energy, and transport), structural change, and institutional quality on transport-related carbon emissions (water, air, and road transport) in 24 European countries over the period 2008–2022. To this end, the study uses the novel half-panel jackknife estimation and the bias-corrected method of moments. The results indicate that there is no long-term relationship between environmental taxes and water transportation-related CO2 emissions. In contrast, structural changes and pollution taxes are effective in reducing road and air transport-related CO2 emissions. These results suggest that European countries should focus on reducing CO2 emissions through effective pollution taxes and encourage carbon taxes instead of energy and transport taxes, thereby supporting the European Green Deal’s goal of becoming the first climate-neutral continent.

This article attempts to document the status of environmental fiscal instruments (EFIs) so as to explore relevant international experiences on ecotaxes in the context of India and to examine India’s specificities in these taxes within a wider perspective of other fiscal measures. Environmental levies across 15 countries were reviewed and the countries categorised are into two groups: Annex II and Non-Annex I. The revenues from levies imposed in the countries were also analysed. The most common form of taxes in Annex II countries in the form of energy taxes, followed by transport taxes. For India, energy and transport taxes could prove to be vital types of ecotaxes for addressing issues of climate change. Pollution taxes are difficult to levy for administrative reasons, but resource taxes are imperative because of severe environmental problems associated with mining and related activities. The revenue generated from environmental taxes and charges for all Annex II countries hovered between 2 and 4 per cent of their respective GDPs, except for Canada and the United States of America, whereas for Non-Annex I nations, this ranged only between 0 and 1 per cent. JEL Classification: H23, Q50, Q58

Introduction. EU countries are showing an increasing trend towards the priority of the public good “clean ecology”. Environmental taxation not only exerts fiscal, but above all, corrective influence on the behavior of economic agents. Nonetheless, the fiscal design of environmental taxes and their composition as a source of budget revenue remains an issue that needs further study. Purpose is to track current environmental tax trends in Europe, the evolution of environmental policy instruments in EU countries, to analyze their economic and social impact; to identify problems with the existing environmental taxation system in Ukraine. Methods. In researching current environmental tax trends in Europe, identifying the stages of evolution of environmental policy instruments, analyzing their impact on the economy and social sphere, substantiating the problems of the existing system of environmental taxation in Ukraine, a number of scientific and special methods of research were used, in particular: analysis, synthesis, induction, deduction, abstraction, generalization, statistical, graphic, tabular. Results. Based on the analysis of the dynamics of different types of environmental taxes in the EU-28 countries for the period 1995–2017 (gross, energy, transport, pollution taxes, resources), a general tendency for their increase was revealed. In a comparative analysis of growth dynamics of total environmental taxes (TET), taxes on CO2 and greenhouse gases in the same sample of countries during the study period, a tendency was found to exceed the growth rate of TET over the reducing harmful emissions, which confirms the implementation of environmental taxes fiscal function, than corrective one. It has been stated that, despite the coherence and systematic nature of European countries' environmental tax policy, compensating for “environmental losses” indirectly increases its sensitivity to public sector efficiency and breaks the link between environmental taxation and the public good “clean ecology”. At the same time, problems were identified in the field of environmental taxation in Ukraine, in particular to the lack of an effective model of taxation, due to the inconsistency of the revenue mechanisms and proportions of the distribution of environmental taxes between budgets of different levels. Conclusions. Further research suggests focusing on assessing efficiency level of the environmental tax system in European countries, which will create the basis for improving the latter in Ukraine.

We study an economy with free firm entry and unemployment due to firm-worker bargaining over each firm's surplus, and where firms cause pollution that can be reduced by initial investments. An uncompensated increase in the pollution tax reduces pollution but increases unemployment, implying a tradeoff between the two. When tax revenues are used to subsidize either firms' hiring or investments, employment may also increase, creating a ‘double dividend’ from the pollution tax. A pollution tax increase used to subsidize current employment is always less effective than a hiring subsidy, and is totally ineffective when subsidies equal pollution tax revenues for each individual firm. We show that the (hypothetical) pollution tax implementing the first-best solution exceeds the Pigouvian tax. The second-best tax exceeds this first-best tax when we have a double dividend, and is below it when we do not.

This study investigates the effects that national income, public expenditures, research and development (R&D) investments, and environmental taxes (ET) have on carbon emissions. The variables of national income, the square of national income, public expenditures, R&D, total ET, transport taxes, and energy taxes are used in conjunction with carbon emission data for this analysis. Three distinct models are used herein: Model 1 employs the total ET, model 2 utilises transport taxes, and model 3 makes use of energy taxes. A Dumitrescu-Hurlin causality analysis was employed to investigate the relationship between the variables, which demonstrates that there was a Granger causality from national income, the square of national income, and public expenditures to carbon emissions. However, there was no Granger causality from R&D expenditures to carbon emissions. Finally, there was a one-way Granger causality relationship from total ET, transport taxes, and energy taxes used as ET to carbon emissions. Therefore, this study concludes that R&D investments are important for the development of environmentally friendly production structures and for increasing the importance of these structures in the economy. Finally, the findings emphasise that ET in particular can be effective in reducing carbon emissions within the framework of the Kyoto Protocol and the Paris Agreement

In recent years there has been great interest in the possibility of substituting environmentally motivated or 'green' taxes for ordinary income taxes. Some have suggested that such revenue-neutral reforms might offer a 'double dividend:' not only (1) improve the environment but also (2) reduce certain costs of the tax system. This paper articulates different notions of 'double dividend' and examines the theoretical and empirical evidence for each. It also draws connections between the double dividend issue and principles of optimal environmetal taxation in a second-best setting. A weak double dividend claim is that returning tax revenues through cuts in distortionary taxes leads to cost savings relative to the case where revenues are returned lump sum. This claim is easily defended on theoretical grounds and (thankfully) receives wide support from numerical simulations.The stronger versions contend that revenue-neutral swaps of environmental taxes for ordinary distortionary taxes involve zero or negative gross costs.Analyses numerical results tend to cast doubt on the strong double dividend claim.Yet the theoretical case against the strong form is not air-tight, and numerical dividend claim is dividend claim is rejected (upheld) are related to the conditions where the second-best optimal environmental tax is less than (greater than) the marginal environmental damages.The difficulty of establishing a strong double dividend claim heightens the importance of attending to and evaluating the (environmental) benefits from environmental taxes.

A number of countries in the EU suffer from two major problems. First, the social and economic problems associated with high unemployment rates and, second, the degradation of natural environments. In the light of both of these problems, environmental tax reforms have been widely discussed in the EU. Indeed, some economists have argued that environmental tax reforms may contribute to reduce unemployment and, at the same time, improve the quality of the environment, thus yielding a so-called 'double dividend' . Other economists, however, have raised doubts on the double-dividend argument. In their view, such a tax reform is not likely to cut unemployment rates. This paper explains that this conflict among economists originates from the difference in methodology, namely, partial equilibrium vs. general equilibrium approaches. In particular, the double-dividend conclusion from the partial equilibrium approach may be misleading because, unlike the general equilibrium analysis, it ignores the interactions between markets. Although general equilibrium models have often been used to show that the double-dividend hypothesis may fail, they also provide insights that unemployment can fall due to an environmental tax reform. However, such a double dividend is typically associated with a shift in the income distribution from people outside the labor market towards the insiders. This change in the income distribution makes it very difficult politically to impose environmental taxes. Hence, concentration on the unemployment argument may frustrate the introduction of environmental taxes because the reduction in unemployment is typically associated with political tendencies due to a change in the income distribution. The best strategy to limit political obstacles seems to be one in which the income distribution is maintained. This can be achieved by using the revenues from environmental taxes to compensate people who bear the burden of the environmental taxes. Such a revenue-recycling strategy is generally different from one that concentrates on reducing unemployment.

China's environmental protection tax (EPT) has been implemented since the beginning of 2018 to control environmental issues (e.g., air pollution). The current EPT law indicates that tax revenues are given to provincial governments without return. However, tax revenue redistribution is the key to achieving a so‐called “double dividend”; that is, an environmental tax could benefit both the environment and economic efficiency. Based on our previous analysis of the effectiveness of the current EPT, we further explore whether the double dividend could be achieved under different tax reforms based on the multiregion and multisectoral computable general equilibrium model. We find that recycling the EPT revenue to reduce household income tax (EPT_Int) is an efficient way to achieve the double dividend, and there is no double dividend if the EPT revenue is compensated by reducing enterprise income tax (EPT_Ent) or by investing in solar power (EPT_Sol). Combining EPT_Int and EPT_Sol could be a better approach if more air pollution emissions reductions are required to achieve the national reduction targets. At the provincial level, recycling the EPT revenues to reduce household income tax could offset the negative effect of environmental tax on the economy and achieve the double dividend in all provinces, especially the provinces with higher emission intensity, such as Shanxi, Hebei, Inner Mongolia, and Guizhou Provinces. This result shows that provinces with high emission intensity may further reduce air pollutant emissions during the post‐EPT era.